New Gas-Powered Plants in U.K. May Demand Guaranteed Returns

Investors in all types of U.K. power plants may demand guaranteed government returns in the wake of new rules for the electricity market, Evolution Securities said.

Britain has proposed shifting its energy policy to rein in the free-market structures imposed in the early 1990s to help replace aging fossil-fueled and nuclear plants with low-carbon alternatives. The Department of Energy and Climate Change recommended guaranteeing long-term prices for low-carbon energy such as nuclear and wind power and setting a minimum price for CO2 emissions.

Some 50,000 megawatts of new “thermal capacity,” stations that burn fossil fuels such as coal and gas, is required by 2030, Lakis Athanasiou, a London-based Evolution Securities analyst, said in an e-mailed note ahead of a presentation in London today. Developers won’t agree to build this without long- term government contracts, given the support it has already committed for nuclear and renewable generation, he said.

“Government will have to enter into long-term contracts” for what is known as combined cycle gas-turbine generation, Athanasiou said.

A panel of lawmakers on May 16 criticized the government’s so-called electricity market reform for favoring nuclear power. The energy and climate change committee said the changes amounted to a subsidy for nuclear. It suggested changes in trading power contracts to improve future pricing transparency and attract new entrants to build power stations.

To contact the reporters on this story: Catherine Airlie in London at cairlie@bloomberg.net;

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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